The “DORIC VALOUR” case

The Court of Appeal recently handed down judgment in AMS AMEROPA MARKETING AND SALES AG AND ANOTHER v OCEAN UNITY NAVIGATION INC) [2024] EWCA Civ 1312case, upholding the first instance decision of Ms Clare Ambrose (sitting as a deputy judge in the High Court) (The “DORIC VALOUR” ([2023] EWHC 3264 (Comm)).

The case concerned a cargo claim relating to damage to yellow soybeans carried from Louisiana to Egypt. The First Claimant (“Ameropa”) was the assignee, Oil Multiseed Extraction Co (“Oilex”) were the lawful holders of the bill of lading.

The Defendant owners were Ocean Unity Navigation Inc (“Owners”).

The Claimants were seeking damages in relation 3,600MT of rejected cargo, which comprised both sound and damaged cargo and had been sold in a salvage sale for USD 355/MT. The original CIF price was USD 438.75 / MT. Ameropa had given Oilex a credit note for the difference between the sum achieved at salvage sale and the price paid under the sale contract (CIF). This credit note was in the amount of USD 284,015.08.

The Owners argued that Ameropa did not have title to sue because, at the time when Oilex assigned their rights to Ameropa, Oilex had already been compensated for the loss by Ameropa. The Owners argued that Ameropa were in fact seeking to claim their own losses arising from their commercial decision to compensate Oilex and sell the rejected cargo on Oilex’s behalf, rather than assert their rights under the sale contract (under which the risk of damage during the voyage lay with Oilex). The Owners maintained that Oilex had not been entitled to reject the cargo and Ameropa could have kept the purchase price paid.

The Owners also argued that only between 15 and 88 MT of the rejected cargo was actually damaged, and that cargo interests had broken the chain of causation and failed to mitigate their losses by: (a) choosing to enter into a salvage sale rather than continue with a manual segregation operation; and (b) failing to obtain multiple salvage bids for the rejected cargo.

The judge at first instance held that:

• Ameropa did have title to sue by virtue of the assignment from Oilex. Oilex’s recovery by way of the credit note from Ameropa and the salvage sale did not affect its title to sue or prevent it from establishing a recoverable loss.

• The credit received by Oilex from Ameropa was directly linked to rights under the existing sale contract rather than arising from owners’ breach. Therefore, it was not a benefit obtained in the course of mitigation for this credit had to be given to the owners.

• Only 70 to 80 MT of the rejected cargo was actually damaged. Nevertheless, cargo interests had not broken to the chain of causation or failed to mitigate by reason of stopping the manual segregation of the cargo. Cargo interests had also acted reasonably in concluding the salvage sale at USD 355/MT.

• In the absence of any conclusive evidence regarding the sound arrived market value of the cargo, damages should be calculated by reference to the difference between the CIF value and the salvage price achieved.

The Owners were granted permission to appeal on the ground of whether Oilex would have had to give credit to owners for the payment of USD 284,015.08 received from Ameropa. Owners argued that this credit had reduced Oilex’s loss.

The Court of Appeal dismissed the appeal. The key points from the leading judgment (delivered by Males LJ) are:

• The general principles in relation to avoided loss were set out by Lord Sumption in Swynson Ltd v Lowick Rose LLP [2017] UKSC 32. As a general rule, loss which has been avoided is not recoverable as damages, although the costs of avoiding it might be recoverable in mitigation. However, there is an exception to this for collateral payments (res inter alios). Broadly speaking, collateral payments are those whose receipt arose independently of the circumstances giving rise to the loss. An example (given by Lord Sumption in Swynson) would be “a benefit received by right from a third party in respect of the loss, but for which the claimant has given consideration independent of the legal relationship with the defendant from which the loss arose.” Lord Sumption gave the example of an indemnity under a contract of insurance, further stating that “In cases such as these, as between the claimant and the wrongdoer, the law treats the receipt of the benefit as tantamount to the claimant making good the loss from his own resources…”

• Per Males LJ, “It is important to appreciate that what matters is the effective (or proximate) cause of the receipt of the benefit. A benefit does not necessarily ‘arise out of the transaction’ merely because it would not have been received but for the defendant’s breach.”

• “In the context of shipping law, there is a clear and well established principle that when cargo is damaged by a shipowner in the course of a voyage, a bill of lading holder with title to sue is (in the absence of special circumstances) entitled to recover damages based on the difference between the sound arrived value and the actual value of the damaged cargo, without giving credit for a payment received pursuant to a contract of sale to which the bill of lading holder is a party. That is not because shipping law stands somehow outside the general principles…but because such a payment is regarded as collateral, arising independently of the circumstances giving rise to the loss; or in causation terms, the effective cause of the payment is the relationship of the parties to the sale contract and not the shipowner’s breach.”

• The trial judge had found that the compensation (credit) given by Ameropa to Oilex was made pursuant to their relationship under the sale contract. The trial judge had been correct to describe it as a “commercial settlement”. There was clear judicial authority per Hobhouse J in The Sanix Ace [1987]  Lloyd’s Rep 465 that the provisions of contracts of sale and purchase to which cargo interests are party to, in the absence of special circumstances, not to be taken into account when assessing the damages paid to cargo interests. The credit note was a collateral payment and should not be treated as a benefit obtained in the course of mitigation which required credit to be given to the ship owner.

The Court of Appeal judgment can be found at the following link: https://www.bailii.org/ew/cases/EWCA/Civ/2024/1312.html